Sorting Military Spending from Squandering

January 30, 2002

By Stan Crock President George Bush plans to seek $48 billion more for the Pentagon in the 2003 fiscal year than the $331 billion Uncle Sam shelled out in 2002. If Congress goes along, the total would approach 4% of gross domestic product, a long-sought target for conservatives. Trouble is, the 4% figure is as dependent on the denominator (the size of the economy) as the numerator (the defense budget). And hitting some arbitrary percentage tells you nothing about whether it's the right amount of money.

The way to figure out if the U.S. is spending what it should on defense is to determine what the threats are, what's needed to address them, and the cost of that strategy. The details of the fiscal 2003 defense budget haven't yet been released, but when they emerge in early February, here are a few things to look for to determine whether the money is being squandered:

Tactical Aircraft. Bush and Defense Secretary Donald Rumsfeld have said they want to pour more money into precision-guided bombs and unmanned aerial vehicles (UAVs), both of which proved effective in Afghanistan. That's good. But the combination of these weapons creates a pincer movement on manned fighters. As bombs get more precise and UAVs get more capable, you need fewer sorties of manned aircraft to achieve a goal.

That means you need fewer manned planes. So unless the increased funding for smart bombs, Predators, and Global Hawks is accompanied by an acknowledgement that current plans to buy 3,000 tactical aircraft can be scaled back, it's a good assumption that money will be wasted on aircraft the military doesn't need.

Aging Weapons. Tactical aircraft aren't the only weapons in this boat. Bush and Rumsfeld have developed a kind of mantra about how weapons platforms, from ships to cargo and refueling aircraft to tanks, are aging relics. It's true. Many weapons are a lot older than the troops who use them. But the implication is that all of these systems need to be replaced -- and that's not true.

If you take any theater scenario, from the Taiwan Strait to Iraq, the U.S. won't need as much armaments as thought a decade ago. That's because the military has higher-quality conventional equipment, while potential enemies haven't kept up. If anything, they're worse off. Simply mothballing some of the oldest equipment could slash the average age of the gear.

Some new stuff needs to be bought, of course. But if the 2003 budget doesn't cut buying plans for a whole host of expensive systems, money will be going down the drain.

Infrastructure. Rumsfeld wants to shrink the timetable for replacing the military's capital inventory from nearly 200 years to something more like the commercial best-practices figure of about 67 years. That requires pumping money into infrastructure. But Rumsfeld also wants to close some bases, a process Congress has delayed for several years. How will Rumsfeld avoid putting money into bases that will be closed shortly? This is a particularly tricky task since decisions on what to close are to be made by a formal commission-review process that hasn't been started.

Cost-Savings. Rumsfeld's executive team hopes to save as much as $30 billion a year by outsourcing services to the private sector. Dream on. A big source of savings was supposed to be privatizing base utilities. It turns out that the first test case, Fort Hamilton in Brooklyn, had only one bidder: Enron. Somehow, I don't think that winner will be doing any more deals of this sort.

And the truth is: Even before it collapsed, Enron wasn't planning on bidding on another of these contracts. It would have cost a fortune to upgrade the infrastructure to meet current standards. If the budget shows substantial cost savings from outsourcing, you'll know something phony is up.

Military Accounting. If military justice is to justice as military music is to music, then both are like what military accounting is to accounting. Every year, the Pentagon can't keep track of billions of dollars. I doubt anyone can remember when the department got a clean auditor's opinion. Defense makes Enron and Arthur Andersen look like paragons of number-crunching. The Rumsfeld team has promised to do something about this. Look closely to see what the budget has to say about this scandal, and whether any progress has been made.

I don't pretend to know what the right number for defense spending is. In the wake of September 11, Bush may well be able to get his increase this year. You can't blame him for striking while the momentum is in his favor. But when Congress is ready to start asking hard questions again, if the President doesn't address the issues mentioned here, the defense budget could be a political minefield for the Commander-in-Chief. Crock covers national security and foreign affairs for BusinessWeek from Washington. Follow his views in Affairs of State twice a month, only on BusinessWeek Online